Making Money With Free Giveaways – Freemium

Freemium or free giveaways, like any other business, is employed with the main objective of making money. How to do that is also the reason why this new business model is born – the main idea is being able to adapt to the changing market and the changing conditions of production.

Loosely defined, freemium is a business model where a product (or service) is given away for free, in the hope of earning from it later by way of charging present users to upgrades of the product or perhaps on product versions that are fully functional.

Product value

With the dizzying pace of today’s technological progress, particularly the Internet and other (mostly digital-based) industries connected or related to it, new forms of business models are born, including freemium.

For a business model that is premised on free product giveaways, freemium still has some important conditions in order to succeed. One of them is having a great product.

No matter if it is given away, the product will never take off unless it has an inherent value. Value can be one of the main engines to drive your product.

Digital duplication / reach

In freemium, it had been established that only a small fraction of the total number of free users will buy something – much less the fully functional version of a product they got for free. If the product is useful to them, the upgrades are redundant and just gravy which they do not need.

On the seller side, it is a must that the costs of production and distribution of the product is virtually zero, or very minimal.  Most digital duplications cost almost nothing. It is the same with distribution where the customer-user themselves do the downloading.

Popular attention

One of the main objectives of freemium is generating the most attention in issuing this free product. The secondary objective could be selling the product or service to some of these free users.

The main argument is that if the free user base is so large, a small percentage of buyers coming from that same group is already sizable enough to generate the envisioned sales target.

Sample company

Skype, as everyone knows, is a VoIP service for audio and video calls through the computer. Since 2003, their free software had over one billion downloads. They had over 16 billion call minutes of Skype-to-Skype calls.

Of these, only 12% were paid calls. In 2008, they declared a $45 million profit for the 3rd quarter alone. The reason they make money even if only 12% of the service are paid is because the product is so cheap to duplicate and distribute.

Going viral

Google and free newspapers are examples of free products that are not freemium. They are completely financed by advertising. LinkedIn gets 75% of its income from premium offers and 25% from advertising.

With freemium as a business model, a product can be spread virally. With the use of free products increasing, there is also an increase in the demand for revenue generating products.

Freemium as a business model recognized the value of the free user even in the absence of income. However, freemium as a business model has the potential of going viral and the potential of making substantial money.

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